Just about nothing impacts on economies and social perceptions of stability more than inflation, and many places, including both China and the US, are facing surges in prices. Inflation is ultimately about too much money chasing too few things to buy, and the cause now is the massive stimulus funds that have been poured into economies around the world to prop everything up. Commodity prices are up sharply, and there are fears amongst employers in China that wages are going to start moving up.
China’s property market is also so upwardly robust that the authorities this week started the process, yet again, of floating the introduction of property taxes to calm thing down. That has been tried several times in the past, but has never worked—so far—because the speculative part of the market just absolutely won’t take it, and also because (in our view) Chinese home-owners know somewhere in their brains that they don’t have full ownership anyway, only usage rights, so why do I have to pay tax on it if I don’t ultimately own it? China’s local government finances are seriously screwed up because of the lack of a property tax, meaning they rely on land sales and apartment buy-sell transactions to raise the bulk of their funds. Will the fight against inflation allow for the introduction of a property tax across the country? Don’t count on it.
The Chinese central bank released stats showing the biggest increase in factory gate prices in three and a half years, and noted that inflation “may continue to rise moderately for a period of time.” But it also tried to calm fears by saying that inflation is “generally controllable” and prices will level out with the recovery of global production and supply after the pandemic. “As a large economy, the increase in international commodity prices is not, on its own, likely to trigger any obvious imported inflation in China as long as it is not accompanied by overheating domestic demand,” the bank said.
In other news, China’s population was reported to have risen slightly in 2020, after a report ahead of time in the FT saying the census result would show a fall. The FT explained the discrepancy by saying they had sources who said officials had spent time recalculating to arrive at a plus rather than a minus. Who knows? Meanwhile, Tesla put the brakes on an extra land purchase near its factory in Shanghai as various pressures and developments raised questions about just how welcome and long-term the company is in the China market. The domestic economy continues to perform well, and the SCMP said that China is looking to Turkmenistan to provide more natural gas as it cuts back on Australian energy imports.
Enjoy the weekend ahead!